Much may hinge on changes taking place on a personal level. In among the news of a bombed-out new deal market and pain in portfolios, recent industry headlines have been dotted with high-profile departures from European GP groups. A number of established industry faces have shuffled, or been ushered, off into retirement (see also p. 64).
As reported elsewhere, Jon Moulton has gone out all guns blazing at Alchemy Partners, the mid-market turnaround specialist he founded in 1997. In a letter to investors, he said he was quitting because he could not support the strategy espoused by likely successor Dominic Slade. He also called Slade's competence into question and suggested that the firm's portfolio should be wound down (see p. 21).
Other recent departures have been as noteworthy, if not quite as theatrical. PAI Partners, the French buyout house which evolved from the buyout team of banking stalwart Paribas, revealed to its limited partners that Dominique Mégret was to step down from his joint position as chairman and chief executive. Mégret, who had been at the firm for 35 years and filled its top spot since 2006, had presided over the raising of the firm's €5.4 billion Fund V, which closed in May 2008.
At the same time it emerged that Bertrand Meunier, who has been at PAI for 27 years and was considered a strong candidate to succeed Mégret, would also depart the firm. PAI had, a spokesman told me, informed investors at the time of the fundraising that Mégret would be retiring during the course of the fund's life.
A month or so earlier London buyout firm Cinven unveiled a new managing partner in the form of 18-year company veteran Hugh Langmuir. Langmuir replaced Robin Hall, now the firm's chairman, who had been leading the firm since 1988. At the same time, sister website PrivateEquityOnline revealed that long-serving Cinven team members Yagnish Chotai and Jonathan Clarke were stepping down.
In August, Candover, a 29-year old firm that has for almost a year been struggling with various issues stemming from its ownership model, unveiled a raft of management changes.
Among these it transpired that Colin Buffin, who had been with the firm since 1985 and became managing director in March 1998, was to leave the firm.
So what's behind all this? The unique model of private equity remuneration is undoubtedly part of the answer. It is often held up as the shining example of long-term performance-related compensation. It can, by the same token, look quite unforgiving in the trough of a downturn. As portfolio companies get written down and the fund's hurdle rate of return becomes more elusive, private equity professionals may lose motivation. And with carry from many of today's funds looking remote, now may seem like an expedient time for a veteran to bow out and retire to the country chateau.
What we may also be witnessing is an evacuation of professionals from the larger end of the buyout spectrum, given that the highly leveraged buyout model has been – at least for the foreseeable future – rendered more or less obsolete by the credit drought. A managing partner at one mid-market firm told me that a recent recruitment drive had yielded a wealth of applications from investment professionals within larger buyout groups. The applicants, he said, had finally discovered a long-held admiration for the mid-market way of doing things.
Beyond these umbrella theories about compensation models and strategic credibility, however, lie specific issues within affected firms. For example, Cinven reportedly lost all €175 million of its equity in Spanish healthcare chain USP Hospitals when the lenders took control in May. PAI's investment in European roofing business Monier – understood to be worth €256 million – went the same way in July. And Candover has had to suspend investments from its 2008 fund – which fell well short of its fundraising target – while its stakeholders decide whether it has a future.
Tough times are clearly a catalyst for change at the top. And, while the tough times last, plenty more changes can be expected.